London frets future as money hub with Europe excluding U.K.

First step toward banking union comes Jan. 1

“The worst outcome would be the creation of an over- powerful banking bloc,” said Clegg, whose coalition government is facing pressure from inside the Conservative Party to hold a referendum on the U.K.’s relationship with the EU. “The rest of Europe needs to be crystal clear: If they integrate in a way that hurts the City, they potentially hurt Europe as a whole.”

Charles Bean, deputy governor of the Bank of England, said the central bank shares the government’s view that a banking union will help bring stability to the euro area and that U.K. banks shouldn’t be a part of it. While the U.K. belongs to the EU, it opted out of the euro zone established in 1999.

Cameron Defeat

“We don’t particularly want to be part of it, so what will be important going forward is that we establish a modus operandi that ensures that decisions that are taken in the European banking union don’t impinge adversely on the way the single market in financial services in Europe operates,” Bean told SkyNews on Oct. 28.

Last night, Euro-skeptic Tories teamed up with the opposition Labour Party as lawmakers in London voted 307 to 294 in favor of an amendment, which isn’t binding on Cameron, urging him to go into negotiations in Brussels at the Nov. 22-23 EU summit with the aim of securing a real-terms cut in the bloc’s spending. He’d already said he’d veto any proposal to increase the budget, and the vote reflects the same divisions that have played out in the debate over a banking union.

U.S. banks that have built securities-trading operations and European headquarters in Britain as a hub for the rest of the region share Ralph and Flint’s concerns, according to an executive with knowledge of lobbying by U.S. lenders who asked not to be identified because the effort is private. If a banking union were to leave London more isolated from the rest of Europe, foreign banks would consider shifting operations to within the euro zone, the executive said.

Single Regulator

“A very large proportion of the City is made up of euro- area banks, and the question for them is whether being under one supervisory roof will deliver over time outcomes which affect their activities in the U.K.,” said David Green, who spent 30 years as a senior supervisor at the Bank of England and then headed international policy at the Financial Services Authority, the U.K.’s industry regulator.

Spokesmen for British banks including Barclays, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc declined to comment, as did those for Citigroup Inc., JPMorgan Chase & Co. and Deutsche Bank AG.

“The U.K. is host to the EU’s main financial center, and it’s essential that it’s not sidelined in the making of regulations that affect it more than other countries,” Anthony Browne, chief executive officer of the BBA, an industry lobby group, said in an e-mailed statement.

London has withstood past challenges to its dominance. More than 10 years ago bankers in the City were dealing with the bursting of the dot-com bubble and concerned they would be left behind as the euro zone adopted a single currency. It went on to have its most profitable five years on record.